Price Discrimination Degrees

Price Discrimination Degrees

The following three types of price discrimination on another ground: (i) price discrimination of the first degree; (ii) price discrimination of the second degree; and (iii) price discrimination of the third degree.

Price discrimination of the first degree involves maximum possible exploitation of each buyer in the interest of a seller’s profits. Price discrimination of the first degree is also called perfect price discrimination. Price discrimination of the first degree or perfect discrimination is said to occur when the monopolist is able to sell each separate unit of the output at a different price. Thus under discrimination of the first degree every buyer is forced to pay the price which is equal to the maximum amount he would be willing to pay rather than do without the good altogether. In other words, under perfect price discrimination, the seller leaves no consumer’s surplus to any buyer.

Price discrimination of the second degree would occur when a monopolist is able to charge separate prices for different blocks or quantities of a commodity from buyers and in this way he takes away a part, but not all of consumer surplus from them. Thus, under the second degree price discrimination a monopolist may charge a high price for first block of say 10 units, the medium price for the additional bloc of 10 units, and a lower price for additional units of a commodity. For example, a monopolist may charge from a buyer a price of INR 2,489.75 per unit for the first 10 units.INR 1,991.8 per unit for the next 10 units and INR 1,493.85 per unit for the next 10 units of the commodity.

Price discrimination of the third degree is said to occur when the seller divides his buyers into two or more than two sub markets or groups depending on the price elasticity of demand and charges a different price in each sub-market. The price charged in each sub market depends upon the output sold in that degree is most common. A common example, of such discrimination is found in the practice of a manufacturer who sells his product at a higher price at home and at a lower price power at a lower price to the households and at a higher price to the manufacturers who use it for degree price discrimination since this is usually more practicable as well as most commonly found in case of the real world.

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